Investors in Funding Circle, the small business lender, have passed a milestone for the peer to peer lending sector after loaning more than £1bn to firms in the UK.

The group said its backers, who earn an interest rate on their loans of about 7% after fees and bad debts, were on track to lend a further £1bn in 2016.

Funding Circle, which was launched in 2010, is the third-largest net lender to small businesses in the UK after RBS and Lloyds Banking Group, according to Bank of England statistics for the third quarter of 2015.

It is a peer to peer lender, meaning it matches investors to small and mid-sized companies needing loans. Investors at Funding Circle include 45,000 individuals, the government-backed British Business Bank, 19 local authorities, a university and a range of financial institutions.

Peer to peer lending has gained prominence in recent years, with a number of players, including Funding Circle rival Zopa and P2P Global Investments, taking advantage of digital technology that helps match investors with borrowers. They have also been boosted by a reluctance among bigger banks to take on risk after the financial crash of 2008.

James Meekings, co-founder of Funding Circle, said: “We’re committed to creating opportunities for small businesses that didn’t exist before. For too long, they were reliant on a single line of credit from traditional providers. We’re building the infrastructure where any investor, big or small, can lend. We want to become the first choice for small business finance by making small business lending faster and easier than ever before.”

In October, Funding Circle acquired its German rival Zencap in its first expansion into continental Europe.

Founded by Meekings, Samir Desai and Andrew Mullinger, Funding Circle was valued at about $1bn (£680m) this year in a funding round that gave it the “unicorn” status accorded to any privately owned digital business that reaches a $1bn valuation.

Funding Circle has long been a candidate to list on the stock market as a public company though a spokesman said there were no immediate plans to do so. “We are focusing on building the business,” he said.

The UK government, including Harriett Baldwin, economic secretary to the Treasury, has encouraged the growth of peer to peer lending as an alternative to conventional bank lenders, especially the larger high street banks which have been hit by the greater regulation that followed the financial crisis.